Friday, December 30, 2011

Mosler makes the Economist

Warren Mosler has made it into the Economist. Nice way to end the year!

People thought that blogs would replace journalism--and that isn't true. But blogs are influential because journalists read blogs. They need to feed the Beast, and they Google just like you or I. MMT's influence in the blogosphere can rival that of the academy, and seeing Warren in the Economist is proof of that.

It's unsurprising that Market Monetarism gets the kindest write-up as it is essentially orthodox Monetarism taken to its logical extreme. This is great, because it makes the absurdities clearer:
In pursuing this target, the central bank would use many of the same tools as today: tweaking the short-term interest rate and, when that reaches zero, increasing NGDP by printing new money to buy more assets (ie, quantitative easing). And the very creation of the NGDP target would make such intervention more effective, Mr Sumner says. If people expect the central bank to return spending to a 5% growth path, their beliefs will help get it there. Firms will hire, confident that their revenues will expand; people will open their wallets, confident of keeping their jobs. Those hoarding cash will spend it or invest it, because they know that either output or prices will be higher in the future.
Confidence fairies and more quantitative easing. Ho hum.

Friday, December 23, 2011

Merry Christmas

Merry Christmas, all!

I must confess, I have yet to go through all the excellent comments folks left on the last few posts. But I will. I am also hesitant to post anything new until I have absorbed all the thought that folks shared. Unfortunately, this may take a while.

One point I will add, though, is that I think attempts to pin the failure of MMT to spread (Steve Keen, Steve Keen! seems to be doing better) on politicians is misplaced, as are attempts to make it easier to understand to laymen, and attempts to reconcile it with standard macro.

This stuff is technical, and on technical material like this the government takes its marching orders from the University. If Obama or Paul or Cain or whomever were to take to the podium and begin spouting MMT he would be a laughing stock before the ink on Paul Krugman's takedown column was even dry. The Fed and the Treasury are staffed by guys who learned from the same textbooks written by professors at Harvard or Princeton. A populist movement to take over the academy in this day and age is ludicrous, it ain't 1968 and it ain't going to be.

This, incidentally, is the problem OWS has.

Secondly, while making MMT easier to understand is a laudable goal, the outcome of this will be to win over Austrians, the other leading candidate for a "people's economics". This will not help in the Academy, but it will fill the blogosphere with semi-correct rantings and it will make Austrians really mad.

Finally, the history of paradigm shifts in the Academy is well documented, and they have always happened via dead bodies, never by the future playing nice with the past. When something is true, that is enough.

Monday, December 05, 2011

Steve Keen on Hardtalk

I don't much like Steve Keen because, although he gets private credit creation correct ("banks create money out of thin air by making loans that then create deposits") he does not get public debt creation correct ("federal deficits create the private sector net financial assets which can then be used to "buy government debt"). How you can understand horizontal money without understanding vertical money is beyond me, but there you go.

Anyway, here is a transcript of Steve on "Hardtalk" -- so, good for Steve for getting on the BBC!

At times, it seems like the understands vertical money:
SK: I wouldn’t say it was a case of making a choice between one individual and another. It has to be a systemic process by which we reduce the level of debt-finance money in the economy and increase the amount of government-created money. Because we have two sources of money in a capitalist economy. The banks can create money by extending loans. The government creates money by running a deficit. Now back in the early 60s the ratio of government created money to the overall money supply was 15%. It’s fallen so far that we’ve got an entirely debt-based system which has driven speculation. We need to create the government money to balance out the credit. So I’d actually have a government creation of money system approach to try to rebalance the system and reduce the private debt.

HT: The government, the central bank, prints money to pay off people’s debts? What I’m wondering is, you say, “Write off debts.” And it’s basically private debt that you want written off. Mortgages, companies’ debt. How is that working?

SK: We’d have to give the money to the debtors rather than to the creditors. If you look at what’s been happening in the last three or four years, all the rescues Bernanke has done, the banks around the world have done, have been to give money, to create money and give it to the banking sector in the belief the banking sector will lend to get the economy starting again. Now that is bizarre because we know one reason they won’t lend is they’ve lent too much already. So all that money has been ineffective.
It is true that the Govt creates money by running a deficit, and that stimulus needs to focus on giving money to households. But from here, why is the solution not to have bigger deficits based on spending/taxation policy that increases household savings?